Offering custom products using a C2M model: Collaborating with an E-commerce platform

Abstract

The e-commerce platform-driven Customer-to-Manufacturer (C2M) strategy is an emerging business model in which the e-commerce platform collects customer preference data and shares this information with manufacturers to facilitate product customization. This model has not been explored in the literature. We examine, from both the platform's and the manufacturer's perspectives, how to effectively offer custom products using the C2M approach. We find that offering custom products is not optimal when the consumers' fit sensitivity (to deviations from their ideal product) is low. When fit sensitivity is medium, offering custom products partially is an optimal strategy. When fit sensitivity is high, offering custom products fully is an optimal strategy. We show that consumers covered in the customization scope receive a greater surplus than customers who buy standard products. Surprisingly, the consumer surplus for the former group decreases with C2M while it remains unchanged for the latter group even though the product price increases. To mitigate the inefficiency arising in a decentralized channel compared to a centralized channel, we propose two types of mechanisms: a commission plus cost-sharing contract and bargaining. These mechanisms facilitate collaboration between the e-commerce platform and the manufacturer and achieve coordination in the supply chain. We extend the model in several ways to verify robustness. Our findings offer managerial insights for e-commerce platforms and manufacturers considering the implementation of the innovative C2M model.